Washington’s decision to cut off US supplies to a Chinese chipmaker spotlights mounting tensions over China’s drive to be a global player in computer chips and the ways in which Taiwanese companies are helping it get there.
Shut out of major global semiconductor deals in the past few years, Beijing has been quietly strengthening cooperation with Taiwanese chip firms by encouraging the transfer of chipmaking expertise to China.
Chip giant United Microelectronics Corp (UMC, 聯電) last week halted research and development activities with Chinese state-backed partner Fujian Jinhua Integrated Circuit Co Ltd (晉華集成電路) following the US move.
Taiwanese firms such as UMC have helped supply China with a steady pipeline of chip expertise in exchange for access to the fast-growing chip market there.
China has faced a shortage of IC chips for years. Last year, it imported US$270 billion of semiconductors, more than its imports of crude oil.
At least 10 joint ventures or technology partnerships have been set up in the past few years between Taiwanese and Chinese firms, according to industry experts, luring Taiwanese talent with hefty salaries and generous perks.
“Such companies will need to also take care to ensure no patent or IP [intellectual property] infringement is involved, as the US has export control means to restrict support of critical technology,” Credit Suisse Group AG analyst Randy Abrams said in Taipei.
Among the most valuable cross-strait partnerships for China would be ones that strengthen its foundry services and memorychip production. Those two sectors require much-needed help from overseas firms due to the complexity of the manufacturing technologies and intense capital requirements, analysts have said.
However, the technology transfer between Taiwan and China has raised concerns amid the Sino-US trade war and escalating tensions across the Taiwan Strait.
China has aggressively used “market-distorting subsidies” and “forced technology transfers” to capture traditional and emerging technology industries, American Institute in Taiwan Director Brent Christensen told a business gathering in late September. “These actions are harming the United States’ economy, Taiwan’s economy and other economies.”
Taiwan is one of the largest exporters of IC globally and many worry the nation could lose a key economic engine to its political foe.
The government views chipmakers’ cooperation with China cautiously and has implemented policies to ensure Taiwan’s most advanced technology is not transferred.
“When businesses go to [China] to invest in wafer production, they must accept controls, including one that requires the manufacturing technology to be a generation behind,” the Ministry of Economic Affairs’ Industrial Development Bureau said in a statement.
Cooperation between UMC and Fujian Jinhua came under scrutiny last month, when the US government put the Chinese company on a list of entities that cannot buy components, software and technology goods from US firms amid allegations it stole intellectual property from US-based Micron Technology Inc.
Fujian Jinhua denied the allegations.
Fujian Jinhua now faces big challenges to reach commercial high-volume production as expected in 2020, industry observers have said.
Last week, UMC and Fujian Jinhua, which was only founded in 2016, were charged with conspiring to steal trade secrets from Micron in a US Department of Justice indictment.
“Taiwanese tech companies need to carefully re-evaluate their positions and supply chain arrangements as the tension between the two super powers escalates,” Bernstein analyst Mark Li said.
While China will need at least six years before it can catch up in chip manufacturing, according to some estimates, the scale of its chipmaking abilities is already seen as a threat in other parts of the chip supply chain.
Barely two-and-a-half years after breaking ground on a 12-inch wafer plant in China, Nexchip Semiconductor Corp (合晶集成) — a joint venture between Taiwanese DRAM maker Powerchip Technology Corp (力晶科技) and the city of Hefei — has started producing 8,000 wafers per month.
Nexchip’s main goal is to produce LCD driver ICs for flat-panel makers.
Using Powerchip’s resources and Taiwanese talent, which make up one-quarter of its 1,200 employees, Nexchip is helping reduce China’s reliance on foreign chip suppliers.
With an aim to become “the world’s No. 1 chipmaker for display drivers,” Nexchip plans to build three more 12-inch wafer plants and ramp up its monthly production to 20,000 wafers by next year, a person with direct knowledge of the matter said.
After visiting Nexchip late last year, researchers from the Hsinchu Science Park (新竹科學園區) said progress at the Hefei plant was a “breakthrough.”
“This will likely increase Taiwan firms’ needs to invest in the China market, and it will be a test for the [Taiwanese] government’s industrial policy,” they said.
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